RAJASTHAN AUTHORITY FOR ADVANCE RULING

GOODS AND SERVICES TAX

KAR BHAWAN, AMBEDKAR CIRCLE, NEAR

RAJASTHAN HIGH COURT

JAIPUR - 302005 (RAJASTHAN)

Note: Under Section 100 of the CGST/RGST Act, 2017, an appeal against this ruling lies before the Appellate Authority for Advance Ruling constituted under section 99 of CGST/RGST Act, 2017, within a period of 30 days from the date of service of this order.

At the outset, we would like to make it clear that the provisions of both the CGST Act and the RGST Act are the same except for certain provisions. Therefore, unless a mention is specifically made to such dissimilar provisions, a reference to the CGST Act would also mean a reference to the same provision under the RGST Act. Further to the earlier, henceforth for the purposes of this Advance Ruling, a reference to such a similar provision under the CGST Act / RGST Act would be mentioned as being under the "GST Act".

The issue raised by M/s HARISH CHAND MODI, 39, Bachhraj ji ka Bagh 11th A Road, Sardarpura, JODHPUR- 342003, Rajasthan, - (hereinafter the applicant) is fit to pronounce advance ruling as it falls under the ambit of the Section 97(2)(e) given as under: -

(e) determination of the liability to pay tax on any goods or services or both;

SUBMISSION AND INTERPRETATION OF THE APPLICANT;

(1) That the appellant (hereinafter referred as "appellant" or "applicant" or "lessor", or "landlord") is a registered assessee under GST laws having GSTN - 08ACEPM8844J1X4.

(2) That the appellant had undertaken construction of its building and decided to give different floors or offices of its building on rent or lease.

(3) That the appellant had entered into an agreement with its tenant and the copy of the rent agreement is attached herewith for your ready reference.

(4) That in accordance with the said rent agreement appellant had given 5,437 sq feet (3,526 sq ft on 7th floor and 1,911 sq ft on 6th floor) at its premises "Shanti One", Plot No 39, 11th A Road, Bachraj ji ka Bagh, jodhpur-342003 (Rajasthan) hereinafter referred as "the said premises", to the tenant on lease for a period 9 years and 11 months divided in 9 terms of 1 year each and 1 term of 11 months.

(5) that the tenant needs to pay following amount in accordance with the rent agreement as attached herewith, the details of which is as under

(6) That with respect to electricity kindly note the following facts in regard to distribution of electricity:-

(a) A transformer is installed at the said premises to convert HT (High Transmission) to LT (Low transmission).

(b) A private DG is also installed at the said premises.

(c) LT Power and DG Power are then transmitted through power distribution panel.

(d) Every tenant is having separate installed electricity sub-meters.

(e) Transmission of electricity to each tenant is recorded through submeters installed at the respective tenant. The sub-meter keeps proper record of electricity consumption viz electricity consumption through DG set and electricity consumption through meter installed by JVVNL.

(7) That with respect to JVVNL electricity the amount reimbursed by the tenant is as under

For your ready reference we are attaching the sample electricity bill and the manner of reimbursement of electricity charges by tenant. (The copy of the said electricity bilI is also attached herewith)

(8) That we are recovering only cost of electricity from the tenant and no amount in any form over and above the cost is being charged.

(9) That the applicant has not provided a separate electric meter to the lessee in the instant case and as such the lessee cannot make the payment of electric charges directly to the electric company. In such circumstances the applicant makes the payment to the electric company and in-turn collects such charges from the lessee. To make the system work, the applicant have installed sub-meters and they collect the charges of the electric power used by the lessee as per the usage of power ascertained from such sub-meter. Two aspects emerge from the above scheme of arrangement

- The applicant has not obtained separate meter from the electric company to facilitate the direct payment of electricity charges by the lessee to the electric company. This is due to practical impossibility in obtaining the separate meters from electricity department.

- In absence of separate meter, the applicant has installed sub-meter and collects the charge of electric power used by the lessee from the lessee and in-tum pays the same to the electricity company.

The above makes it amply clear that the lessee was supposed to pay the electricity charges directly to the electric company as per the actual usage in terms of the agreement. However, for the failure of the lessor to obtain a separate electric meter for the premises rented to the lessee, they have mutually agreed to collect the electric charges on the basis of actual usage based on the sub-meters and onward payment to the electric company.

At this juncture, it is noteworthy to note that with a purpose to ensure such actual payment, the lessor i.e. the applicant has installed a sub-meter for the lessee. Thus, it is purely a reimbursable expense made by the lessee which is collected on actual usage of the electric power.

Secondly, if at all the amount was not be charged on actual usage basis, it would have been all the more easier for both the parties to fix a certain amount towards electricity charges in the agreement itself. However, this has not been done which clarifies the intent of both the parties that the charges towards electric power usage would be on actual basis however, Due to lack of infrastructure on the part of the lessor, there is a silent agreement between both the parties that the applicant will collect the actual usage charges on the basis of the reading of the sub-meter and in-turn pay the same to the electric company.

Point on which advance ruling is sought for -

The question/issue before you for determination is -

(a) Whether reimbursement of electricity expenses, on actual basis, by the lessee to lessor would form part of taxable value?

(b) If the answer to above is no. whether GST is levied on the reimbursement of expenses from the lessee by the lessor at actuals?

(c) If answer to the above is yes, what is the rate of GST applicable to said reimbursement of expenses?

Our Submissions

(1) It is hereby submitted that our case is covered under clause (c) and (e) subsection (2) of Section 97 of CGST Act 2017 which reads as under -

(c) determination of time and value of supply of goods or services or both.

(e) determination of the liability to pay tax on goods or services or both.

(2) At the outset, we would like to submit that the provisions of both the CGST Act 2017 and the RGST Act 2017 are the same except for certain provisions. Therefore, unless a mention is specifically made to such dissimilar provisions, a reference to the CGST Act 2017 would also mean a reference to the same provision under the RGST Act 2017.

(3) We request you to consider the following submission

Legal Provisions -

(A) Section 7 Scope of Supply

For the purposes of this Act, the expression "supply" includes,-

(a) all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business;

[(aa) the activities or transactions, by a person, other than an individual, to its members or constituents or vice-versa, for cash, deferred payment or other valuable consideration.

Explanation,- For the purposes of this clause, it is hereby clarified that, notwithstanding anything contained in any other law for the time being in force or any judgment, decree or order of any Court, tribunal or authority, the person and its members or constituents shall be deemed to be two separate persons and the supply of activities or transactions inter se shall be deemed to take place from one such person to another;]

(b) import of services for a consideration whether or not in the course or furtherance of business; and

(c) the activities specified in Schedule I, made or agreed to be made without a consideration;

(d) ***

(B) Section 15. Value of taxable supply.

(1) The value of a supply of goods or services or both shall be the transaction value, which is the price actually paid or payable for the said supply of goods or services or both where the supplier and the recipient of the supply are not related and the price is the sole consideration for the supply.

.................................................................................................................

............................................................................................................."

(C) Rule 33. Value of supply of services in case of pure agent.-

Notwithstanding anything contained in the provisions of this Chapter, the expenditure or costs incurred by a supplier as a pure agent of the recipient of supply shall be excluded from the value of supply, if all the following conditions are satisfied, namely,-

(i) the supplier acts as a pure agent of the recipient of the supply, when he makes the payment to the third party on authorisation by such recipient;

(ii) the payment made by the pure agent on behalf of the recipient of supply has been separately indicated in the invoice issued by the pure agent to the recipient of service; and

(iii) the supplies procured by the pure agent from the third party as a pure agent of the recipient of supply are in addition to the services he supplies on his own account.

Explanation.- For the purposes of this rule, the expression "pure agent" means a person who-

(a) enters into a contractual agreement with the recipient of supply to act as his pure agent to incur expenditure or costs in the course of supply of goods or services or both;

(b) neither intends to hold nor holds any title to the goods or services or both so procured or supplied as pure agent of the recipient of supply;

(c) does not use for his own interest such goods or services so procured; and

(d) receives only the actual amount incurred to procure such goods or services in addition to the amount received for supply he provides on his own account.

Illustration:- Corporate services firm A is engaged to handle the legal work pertaining to the incorporation of Company B. Other than its service fees, A also recovers from B, registration fee and approval fee for the name of the company paid to the Registrar of Companies. The lees charged by the Registrar of Companies for the registration and approval of the name are compulsorily levied on B. A is merely acting as a pure agent in the payment of those fees. Therefore, A's recovery of such expenses is a disbursement and not part of the value of supply made by A to B.

(D) Our Interpretation

(1) In view of section 7 and particularly in view of the highlighted portion above, for any transaction to quality' as supply, there must be consideration charged by the supplier from the recipient. In absence of consideration being charged by the supplier any transaction cannot fall within the purview of supply and consequently out of the purview of levy of GST.

(2) Reimbursement of expense is nothing but to repay certain expense incurred by the person on behalf of other person.

(3) In accordance with Section 15 of CGST Act 2017 and Rule 33 of CGST Rules 2017 (relevant part of the base provision is stated above), reimbursement of expenses on cost to cost basis do not qualify for being addition in the value of supply.

(E) Our View on the issues

Since we are not charging anything over and above the cost of electricity therefore in absence of consideration and being a pure agent in terms of rule 33 of the CGST Rules 2017 such reimbursement of expenses can neither form part of taxable value nor can be chargeable to GST.

In support of our view that reimbursement of expenses is not chargeable to tax there are decided rulings some of which are stated hereunder:-

Without prejudice to above it is a so submitted that the appellant also quality as a 'pure agent'. All the conditions of Rule 33 are duly complied with as under

In view of the above discussion in the light of provisions of law, rules, judicial rulings and covenants of rent agreement the appellant believes that reimbursement of electricity expenses in its case do not form part of value of taxable services or not chargeable to GST.

However, the appellant seeks clarity on the issues raised as to whether electricity expenses shall form part of taxable value based on the nature of services provided or whether reimbursement of electricity expenses is chargeable to GST. Applicant attached copy of Rent Agreement and Sample Electricity Bill in support to their submission.

A. QUESTIONS ON WHICH THE ADVANCE RULING IS SOUGHT

(a) Whether reimbursement of electricity expenses, on actual basis, by the lessee to lessor would form part of taxable value?

(b) If the answer to above is no, whether GST is levied on the reimbursement of expenses from the lessee by the lessor at actuals?

(c) If answer to the above is yes, what is the rate of GST applicable to said reimbursement of expenses?

B. PERSONAL HEARING

In the matter personal hearing was granted to the applicant on 03.09.2021 at Room no. 2.11 NCRB, Statue Circle, Jaipur. Sh. Akash Phophalia (CA), Authorised Representative of applicant appeared for PH. During the PH, he reiterated the submissions already made in the written application. He also made additional submission during the PH.

c. COMMENTS OF THE JURISDICTIONAL OFFICER

Comments received from the Assistant Commissioner, Ward-III, Circle-E, State Tax, Jodhpur vide letter dated 28.06.2021 are as under: -

D. FINDINGS, ANALYSIS & CONCLUSION:

1) We have gone through the facts of the case, submission made by the applicant at the time of preliminary hearing.

2) We observe that applicant had entered in a rent agreement with its tenant (Lessee) and had given 6th & 7th floor of its building at premises "Shanti One", Plot No 39, 11th A Road, Bachraj ji ka Bagh, Jodhpur-342003 on lease to lessee. Applicant is supplier of Renting & Leasing of Immovable Property (sac codes- 997212). The applicant has not provided separate electric meter to the lessee in the instant case and as such the lessee cannot make the payment of electric charges directly to the electric company. In such circumstances the applicant makes the payment to the electric company and in-turn collects such charges from the lessee. To make the system work, the applicant has installed sub-meters and they collect the charges of the electric power used by the lessee as per the usage of power ascertained from such sub-meter.

3) As per rent agreement, the applicant had charged Rent, Maintenance charges, Interest, Security Deposit, JVVNL Electricity charges and DG electricity charges from tenant (Lessee). The applicant received advance in this regard from the lessee and made adjustment thereof in upcoming months/periods.

4) Before we delve deep to decide the case, it would be proper in the fitment of justice to discuss the relevant provisions of the statute which are as under-

Section 7 of the CGST Act, 2017

Scope of supply:-

(1) For the purposes of this Act, the expression-supply includes,-

(a) all forms of supply of goods or services or both such as sale, transfer, bailer, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business;

(b) import of services for a consideration whether or not in the course or furtherance of business;[and]

(c) the activities specified in Schedule I, made or agreed to be made without a consideration; [****]

(d) [*****]

[(1A) where certain activities or transactions constitute a supply in accordance with the provisions of sub-section (1), they shall be treated either as supply of goods or supply of services as referred to in Schedule II.]

(2) Notwithstanding anything contained in sub-section (1),-

(a) activities or transactions specified in Schedule Ill; or

(b) such activities or transactions undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities, as may be notified by the Government on the recommendations of the Council, shall be treated neither as a supply of goods nor a supply of services.

(3) Subject to the provisions of [sub-sections (1), (1A) and (2)], the Government may, or the recommendations of the Council, specify, by notification, the transactions that are to be treated as-

(a) a supply of goods and not as a supply of services; or

(b) a supply of services and not as a supply of goods

Section 8 of the CGST Act, 2017

Tax liability on composite and mixed supplies.-

The tax liability on a composite or a mixed supply shall be determined in the following manner, namely:-

(a) a composite supply comprising two or more supplies, one of which is a principal supply, shall be treated as a supply of such principal supply; and

(b) a mixed supply comprising two or more supplies shall be treated as a supply of that particular supply which attracts the highest rate of tax.

Section 15 of the CGST Act, 2017

Value of Taxable supply.-

(1) The value of a supply of goods or services or both shall be the transaction value, which is the price actually paid or payable for the said supply of goods or services or both where the supplier and the recipient of the supply are not related and the price is the sole consideration for the supply.

(2) The value of supply shall include,-

(a) any taxes, duties, cesses, fees and charges levied under any law for the time being in force other than this Act, the State Goods and Services Tax Act, the Union Territory Goods and Services Tax Act and the Goods and Services Tax (Compensation to States) Act, if charged separately by the supplier;

(b) any amount that the supplier is liable to pay in relation to such supply but which has been incurred by the recipient of the supply and not included in the price actually paid or payable for the goods or services or both;

(c) incidental expenses, including commission and packing, charged by the supplier to the recipient of a supply and any amount charged for anything done by the supplier in respect of the supply of goods or services or both at the time of, or before delivery of goods or supply of services;

(d) interest or late fee or penalty for delayed payment of any consideration for any supply; and

(e) subsidies directly linked to the price excluding subsidies provided by the Central Government and State Governments.

Explanation.- For the purposes of this sub-section, the amount of subsidy shall be included in the value of supply of the supplier who receives the subsidy.

Rule 33 of the CGST Rules, 2017

Value of supply of services in case of pure agent -

Notwithstanding anything contained in the provisions of this Chapter, the expenditure or costs incurred by a supplier as a pure agent of the recipient of supply shall be excluded from the value of supply, if all the following conditions are satisfied, namely.-

(i) the supplier acts as a pure agent of the recipient of the supply, when he makes the payment to the third party on authorisation by such recipient;

(ii) the payment made by the pure agent on behalf of the recipient of supply has been separately indicated in the invoice issued by the pure agent to the recipient of service; and

(iii) the supplies procured by the pure agent from the third party as a pure agent of the recipient of supply are in addition to the services he supplies on his own account.

Explanation.- For the purposes of this rule, the expression ,-

pure agent means a person who-

(a) enters into a contractual agreement with the recipient of supply to act as his pure agent to incur expenditure or costs in the course of supply of goods or services or both;

(b) neither intends to hold nor holds any title to the goods or services or both so procured or supplied as pure agent 01 die recipient of supply;

(c) does not use for his own interest such goods or services so procured; and (d) receives only the actual amount incurred to procure such goods or services in addition to the amount received for supply he provides on his own account.

Illustration.- Corporate services firm A is engaged to handle the legal work pertaining to the incorporation of Company B. Other than its service fees, A also recovers from B, registration fee and approval fee for the name of the company paid to the Registrar of Companies The fees charged by the Registrar of Companies for the registration and approval of the name are compulsorily levied on B. A is merely acting as a pure agent in the payment of those fees. Therefore, A's recovery of such expenses is a disbursement and not part of the value of supply made by A to B.

5) . In view of above legal provisions and fact of the case, we observe that Principal supply of services by the lessor is "renting of immovable property". Electricity charges or incidental charges, maintenance charges are in relation to composite supply of principal service of renting of immovable property, any incidental charges or expenses in respect of supply of service shad form part of value of taxable supply in terms of clear provisions of Section 15 of the CGST Act, 2017. We find that the electricity expenses/charges related clause is mentioned in para 8(g) of the agreement. It reads that,

".........this is a prepaid meter, hence a computer generated invoice will be provided by the lessor to the Lessee as per actual unit cost with the other electrical related expenses and taxes "

From this it is clear that the payment regarding the electricity expenses is collected by the Lessor by issuing invoice for the same. Hence, there is a established fact that supply of service has been made to the lessee for consideration by issuing invoice(s).

6) The facts submitted by the applicant (here Lessor) also state that the Lessor is also providing Services of DG set on Fixed rate of Rs 10000/- per month and Rs 18/- per unit for each unit consumed. This service is also an ancillary service of principal supply of services 'renting of immovable property (SAC Codes- 997212) and covers 'any amount charged for anything done by the supplier in respect of the supply of goods or services or both at the time of, or before delivery of goods or supply of services' as per clause (c) subsection (2) of section 15 of the CGST Act, 2017.'

7) As far as expression 'Pure Agent' is concern, in the instant case there is no clear authorisation made by the lessee on which the supplier (lessor) acts as a pure agent of the recipient of the supply, when he makes the payment to the third party. The rent agreement itself not become an authorisation as nowhere in the said agreement has the 'reimbursement' term been mentioned. Further applicant (lessor) does not enter into a contractual agreement with the recipient (Lessee) of supply to act as pure agent to incur expenditure or costs in the course of supply services. Hence, the act of working as an 'pure agent' has not been phrased out. Thus, reimbursement of electricity expenses had not been made on actual basis, by the lessee to lessor as it had been collected in advance with rent and further adjusted by raising the invoice/bill/memo/document by the lessor. Therefore, in the instant case, the so called reimbursement of electricity expenses would form part of taxable value in term of clause (c) subsection (2) of section 15 of the CGST Act, 2017.

8) The case laws cited by the applicant are not applicable in this case as the facts are different from the present case.

9) Thus, in conclusion we observe that in the instant case, the applicant had not acted as "pure agent" and invoice/bill/memo/document issued in relation to collect Electricity charges or incidental charges, maintenance charges, are in relation to composite supply of principal service of renting of immovable property as any incidental charges or expenses in respect of supply of service shall form part of value of taxable supply. Since the principal supply provided by the applicant (here Lessor) is of Renting & Leasing of Immovable Property (sac codes- 997212), it will attract GST @ of 18% (SGST-9%, CGST-9%) of the taxable value of supply.

10) In view of the foregoing, we rule as under: -

RULING

Q. (a) Whether reimbursement of electricity expenses, on actual basis, by the lessee to lessor would form part of taxable value?

Ans:- Yes. In the instant case, reimbursement of electricity expenses, on by the lessee to lessor would form part of taxable value as it is not on actual basis.

(b) If the answer to above is no, whether GST is levied on the reimbursement of expenses from the lessee by the lessor at actuals?

Ans:- GST is levied on the reimbursement of expenses in the instant case.

(c) If answer to the above is yes, what is the rate of GST applicable to said reimbursement of expenses?

Ans:- Since the principal supply provided by the applicant (here Lessor) is of Renting & Leasing of Immovable Property (sac codes- 997212), it will attract GST @ of 18% (SGST-9%. CGST-9%) of the taxable value of supply.

15/09/2021
(J. P. MEENA)	(M. S. Kavia)
Member	Member
(Central Tax)	(State Tax)